Last week, investors got excited about banking stocks. They thought that the Federal Reserve could stop making things more expensive and that the American economy could have a smoother path.
On a special Tuesday, when the news was saying things were getting cheaper, two major bank indices, the KBW Nasdaq US Bank Index and the KBW Nasdaq US Regional Bank Index, jumped big. It was their biggest one-day jump since May 2020. Since the beginning of November, they are up about 13%.
But here’s the thing: Experts aren’t willing to say everything is perfect for banks. They say many challenges still remain and could persist until 2024.
Although regional banks are now in better shape than in the first part of the year, when some banks were in big trouble, they are still finding it difficult to make much money. Because? Because things like interest rates are high and that means banks pay more for deposits. Furthermore, they lose money on some investments and it is not easy for people to borrow money.
Some new rules will arrive in 2025 that could make it even more difficult for these medium-sized banks to perform well. People are arguing a lot about these rules in Washington.
Here’s a surprising fact: Although things seem to be improving, regional banks haven’t fared as well as the S&P 500 this year. These bank indices are still not performing as well as the S&P 500 when looking at their performance.
People who like banks say that maybe the highest interest rates have already been reached and there won’t be a big economic problem in 2024. If the Federal Reserve makes things cheaper next year, it could help banks make more money.
Right now, the Federal Reserve has set a target for interest rates between 5.25% and 5.50%, the highest since 2001. Some people think that if the Fed starts making things cheaper, it might be good for the banks. This happened in 1995 and the banks did very well that year.
But some people aren’t so sure. They say, “Sure, things look good now, but they may not stay that way.” They note that in July things seemed to get better, but then they got worse again in September.
Analysts say it’s good to see banks doing better, but they may not continue to rise. They worry that when the government sells long-term debt, things could become more expensive again.
And there are other things to worry about, like real estate and banks losing money on some investments. So while it’s good to see banks doing better, some caution is still necessary.
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